M Macys Inc

By Joshua Jamerson and Sarah Nassauer 

Wal-Mart Stores Inc. is reaping the benefits of spending big to boost sales, getting more shoppers through its doors at a time when many retailers are struggling to attract foot traffic.

On Thursday the retailer said sales in existing U.S. stores rose for the eighth consecutive quarter, up 1.6% as more customers visited, providing a stark contrast to other retailers reporting weak earnings in recent days including Target Corp. and Macy's Inc.

The world's biggest retailer has poured billions recently into making its U.S. stores more efficient and pleasant, boosting employee wages and improve e-commerce operations as it tries to fend off Amazon.com Inc.

"With transitions like this you tend to gain first with existing customers," said Wal-Mart U.S. CEO Greg Foran on a conference call. Those customers are visiting more often and "I think they are putting an extra item in the basket because it's in stock or looks fresh," said Mr. Foran.

Executives attributed sales gains in the U.S. to improvements they have made to stores, as well lower gas prices which left shoppers with more money to spend. Sales were hurt by deflationary food prices, they said.

Wal-Mart lifted its per-share profit outlook for the year to $4.15 to $4.35 and said third-quarter sales in existing U.S. Wal-Mart stores would rise 1.0% to 1.5%. Shares, which were trading near 52-week highs, rose 1.7% to $74.24 in midmorning trading.

Sales look strong, said John Zolidis, retail analyst at the Buckingham Research Group in a note. "Unfortunately, the price of this stability has been a multiyear erosion in margins and profitability." Wal-Mart's profit [operating income] fell 7.2% in the second quarter ended July 31.

Many traditional retailers have struggled recently to grow sales and adjust to customer's changing online shopping habits. Target said Wednesday that same-store sales fell for the first time in more than two years and warned sales would fall in the next two quarters. Macy's last week said it would shut 100 more stores, or 14% of its physical base, as shoppers increasingly opt to make purchases online and spend more on services including travel and health care than on goods.

In the second quarter, Wal-Mart reported global e-commerce sales rose 11.8%, the first time in nine quarters the retailer's online sales growth has increased quarter-over-quarter, but still slower than the e-commerce market's growth overall.

Earlier this month, Wal-Mart agreed to purchase discount e-commerce retailer Jet.com Inc. for $3.3 billion, the largest acquisition of a U.S. e-commerce startup. Wal-Mart also said current head of e-commerce Neil Ashe would be replaced by Jet's founder Marc Lore to lead its e-commerce efforts once the deal is complete. It expects to close the deal later this year.

Wal-Mart ramped up package delivery to lead its e-commerce efforts speeds in the second quarter and started selling millions more products on its website. In July Wal-Mart offered a free monthlong trial of a $49 two-day shipping membership similar to Amazon's popular Prime program, a sign that its delivery logistics network is becoming more robust.

Walmart.com now sells 15 million items, said executives, as it added more third-party sellers. Until May, the technology behind Wal-Mart's website capped the number of products it could display to shoppers at around 8 million, a major competitive weakness compared with Amazon's hundreds of millions of available products.

Wal-Mart is also trying to make its produce, meat and grocery business more top-of-mind for shoppers, an effort at the heart of its plan to fend off online retailers as consumers still tend to shop offline for fresh food. During the quarter, the company reported strong traffic in food and consumables, such as beauty and cosmetics, in its grocery segment. The company also reported stronger pharmacy sales, helped by drug price inflation and more prescriptions filled.

Entertainment sales were soft. Target also reported weakness in electronics sales. Consumers are still "a little more cautious than the numbers might indicate," said Wal-Mart Finance Chief Brett Biggs, on a conference call. "But overall we are seeing a consumer that is acting quite steadily.

Overall, Wal-Mart reported earnings of $3.77 billion, or $1.21 a share, compared with a year-earlier profit of $3.48 billion, or $1.08 a share. Excluding the gain from the sale of its Yihaodian website in China, the company earned $1.07 a share.

In U.S. stores, the bulk of Wal-Mart's revenue, 1.2% more people shopped and spent 0.4% more. Sales in Wal-Mart's smaller format Neighborhood markets rose 6.5% in the quarter.

Revenue edged up 0.5% to $120.85 billion. In constant currency, revenue rose 2.8%.

Write to Joshua Jamerson at joshua.jamerson@wsj.com and Sarah Nassauer at sarah.nassauer@wsj.com

(END) Dow Jones Newswires

August 18, 2016 12:03 ET (16:03 GMT)

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